Peter Margulies (Roger Williams University School of Law) has posted Reform and Removal at the Federal Reserve: Independence, Accountability, and the Separation of Powers in U.S. Central Banking (Marquette Law Review, Forthcoming) on SSRN. Here is the abstract:
Separation of powers issues concerning the Federal Reserve System have generated intense debate. Controversy has been acute regarding the system’s provision of for-cause protection from presidential removal for members of the Board of Governors and the absence of the gold standard of presidential appointment or Senate advice and consent for other key officers. This debate has gained traction from the Supreme Court’s recent decisions finding constitutional flaws with removal protections in federal agencies such as the Consumer Financial Protection Bureau and with procedures for appointing and supervising other federal officials.
This Article turns to a novel approach that assesses past practice and agency costs. The Article draws a distinction between incremental movement, which can waffle between extremes, and watershed moments, which herald a sea change. The Article argues that the Constitution grants agency to both Congress under the Necessary and Proper Clause and the President under the Take Care and Vesting clauses. Citing recent scholarship on the ambiguity in the First Congress’s legislation on the removal power in 1789, the Article classifies that legislation as an incremental movement, not the watershed that champions of a broad removal power have claimed.
Citing Congress’s interest in reducing agency costs, the Article argues that Congress can enact narrowly tailored restrictions on presidential removal of senior cabinet officials that are confined to particular domains, supported by specific findings, and subject to tight sunsets. This approach would sanction a variant of the Reconstruction Congress’s Tenure in Office Act, which sought to curtail President Andrew Johnson’s effort to undermine the Reconstruction program.
The Article also argues that the Framers envisioned independence in public-debt regulation, to insulate officers from political pressure to increase the money supply. This premise supports the constitutionality of for-cause removal protections for the Federal Reserve’s Board of Governors. However, the Article also argues that inadequate supervision of Reserve Bank presidents who sit on the FOMC, revealed in two recent episodes of inappropriate trading activity, shows the need for presidential appointment and Senate confirmation of these key participants in the Federal Reserve’s deliberations.
